Hello Volatility my Old Friend

I don’t know why, but so many things in life seem to be able to be expressed in someone else’s song.

For lots of people, the feeling is that the song is speaking directly to them and captures exactly what they’ve felt.

For me, if that were the case, I’d be a die hard fan of instrumentals.

As much as I love Bruce Spriingsteen, there’s no doubt that he’s not singing to me or about anything that I know or can identify with. I’m just a big fan of unbridled sweat stains.

“I see you walking down the street, pushing that baby carriage at your feet'” is a line that I can play back in my head for hours at a time, yet it means nothing to me.

“My father said right before he died that true true love was just a lie.”

Again. Nothing.

Hello Volatility my Old FriendSimon and Garfunkel come as close as anyone that I could identify with other than the fact that I can’t sing and I never had any friends to disharmonize with on the streets of the city.

Garfunkel on the other hand did have a couple of solo hits that seemed to speak to me, but more than likely it was the hair that I idenitfied with.

Now that he’s old and has male pattern baldness, I won’t look nor listen in his direction.

For me, volatility is far from the “darkness” that the original duo known as “Tom and Jerry” sang about, except that I do think of it as my friend.

Friendship is a strange thing, because even arch nemeses somehow perversely become friends, if only because of the years upon years of battling with one another, and the mutual understanding and respect that ensues. At least that’s the image that’s painted in “The Fugitive,” and “The Pink Panther.”

Personally, I think that years of battling would only deepen the anger and hatred.

The recent friend, Green Mountain Coffee Roasters and Starbucks just had a falling out and then just as quickly had a reconciliation, just yesterday.

Friendship is great and quantifiable, as Green Mountain went up about 13% after Starbucks announced yet another initiative with their insipid coffee making friends.

But then, Starbucks CEO Howard Schultz was on air after the annual meeting and despite saying nothing but good and warm things about his friends in Vermont, discounted it all as he quickly changed his tone and cadence with the perfect use of the word “however,” as he transitioned to a more bubbly discussion of Starbuck’s upcoming venture into coffee hardware.

Whatever happened to Simon and Garfunkel, anyway?

Everything in my world changed on January 9th, 2012. That was the first day of the new trading year that I started a trend of under-performing the market.

The first week of January was basically like all of the previous 4 years.

Those were the years that volatility  was here. Those were the years when markets would as easily go up 100 points one day as go down 100 points the very next, or sometimes two or three times in a single day.

Those were the days that I might sell and then buy back call contracts on Freeport McMoRan two or three times in a day.

For many, volatility represented “darkness” as it introduced uncertainty and fear.

I look at volatility as reflecting our civilization and then find myself asking the age old question “would you rather live during the ascendancy of a civilization or during its descendency?”

Once I receive information regading the scale used on the axes and where along the path I was at the momment, I might be prepared to answer that question.

The past few days saw early morning returns to volatility only to use those gains to tease me, as they disappeared as the days wore on.

This morning was different, at least through noontime when I began pounding away.

And then I started writing today’s blog.

Sorry, couldn’t resist.

What I also couldn’t resist was selling some more call contracts on a portion of my ProShares UltraShort Silver ETF holdings. Still, after one trade earlier in the week, the position is still woefully under-hedged, with about 70% of the shares sitting out there on their own, but the very same shares that casued me to under-perform, have in the past two weeks started leading me back.

Like everything else that I own, I really don’t care whether it goes up or down in price, as long as it moves somewhere and then back to where it started, over and over again.

Imagine being perennially drunk or having some organic destruction of your brain.

Sort of like, “these are your stocks. These are your stocks with Alzheimers.”

All of the opportunity to create income from selling call options or from selling puts comes from the volatility.

As volatility has fallen I’ve found myself not only under-performing, but also venturing into more risky positions.

In the past, I might play around with 5% of my holdings and maybe get into something a bit more speculative than what I considered as my “Old Reliables,” but these days, in search of premiums I see a portfolio with the likes of MolyCorp and Green Mountain.

Money makers, yes, but at a price. They’re not really my friends.

That price is that at any moment their bottoms could fall out and even with all of the weekly option premiums in the world, climbing back to ground zero would be a difficult task.

In the time that I’ve held Green Mountain, it’s taken quite a few hits, but the period that its done so has been long enough that the premiums have added up.

As much as volatlity is my friend, I’ve also come to realize that my nemesis, the assignment of shares, is also my friend.

As much disdain as I have for people that seek to make a quick killing through the leverage that option purchases offer, I realize that neither of us could exist without the other.

Where would Wile E. Coyote be without the Roadrunner? What would ever happen to him if he caught his prey? Would life even be worth living?

So as bad as those days of great volatility may have seemed on the surface, all of the uncertainty and all of the gut wrenching losses (and gains), where would we be without it?

If anything, volatility brings us out of the darkness.

Without the volatility, in fact, there’s even more uncertainty. As stocks seem to take a slow climb in a single direction, at some point everyone has to start believing that the bottom will fall out.

In that situation, those that continue buying in the market consider themselves to be contrarians and those that sell the market, in the face of the continuing climb, consider themselves to be contrarians.

Obviously a set of circmstances that would throw the universe off of its equilibrium, just like when both Dr. Richard Kimble and Detective Gerard believe that they are the good guy.

For one, I don’t mind looking at paper losses. How else could I explain holding those UltraShort leveraged silver ETF shares for the past couple of months.

Well, yes, there is stupidity, but I have a reasoned approach to ignoring the traditional tenets of Bernard Baruch.

So welcome the volatility. He is your friend.




Check out Recent PortfolioTransactions and
Transaction Performance 


Recent Trades Security Type Action Type
March 22, 2012 ZSL Call STO Weekly
March 21, 2012 GMCR Call STO Weekly
March 20, 2012 MS Put STO Weekly
March 20, 2012 ZSL Call STO Monthly
March 20, 2012 MCP Put STO Weekly
March 20, 2012 BP Put STO Weekly
March 20, 2012 SLV Put STO Weekly
March 19, 2012 VXX Call BTC Weekly
March 19, 2012 CVC Call STO Monthly
March 19, 2012 MOS Call STO Weekly
March 19, 2012 MOS Stock Added
March 19, 2012 MS Call STO Weekly
March 19, 2012 KSS Call STO Monthly
March 19, 2012 KSS Stock Buy
March 19, 2012 KSS Put STO Monthly
March 19, 2012 VXX Put STO Weekly
March 19, 2012 VXX Call STO Weekly
March 19, 2012 VXX Stock Buy
March 19, 2012 MCP Call STO Weekly
March 19, 2012 CHK Call STO Weekly
March 19, 2012 ZSL Put STO Monthly
March 19, 2012 AFL Call STO Monthly